Lebanon set to get new national unity government in days - politicians

BEIRUT (Reuters) - Lebanon is on track to form a new national unity government in the next few days, politicians said on Tuesday, raising hopes for an end to more than seven months of wrangling that has darkened the outlook for its struggling economy.

Efforts to form the new government, led by Prime Minister-designate Saad al-Hariri, have been obstructed by conflicting demands for cabinet seats that must be parcelled out in line with a finely balanced, sectarian political system.

Heavily indebted and suffering from a stagnant economy, Lebanon is in dire need of an administration that can set about long-stalled reforms to put public debt on a sustainable footing.

"Matters are moving quickly and if things stay like this without obstacles - and I don't expect obstacles - the government will soon see the light," Major General Abbas Ibrahim, a top security official involved in efforts to end the impasse, said in a televised news conference.

Finance Minister Ali Hassan Khalil told Reuters the process was "in the last phase and it is probable that the government will be formed before the Christmas holiday". "This will leave a positive impact on the financial and economic situation and open the way for a start to dealing (with) this file," he added.

Fitch Ratings on Tuesday changed Lebanon's outlook to negative from stable, citing a further deterioration in government deficits and debt dynamics and signs of rising pressures on Lebanon's financing model.

The May 6 national election, Lebanon's first in nine years, produced a parliament tilted in favour of the heavily armed, Iran-backed Shi'ite Muslim group Hezbollah, which together with its political allies won more than 70 of the 128 seats.

Hariri, who enjoys Western backing, lost more than one third of his lawmakers, though he remained Lebanon's biggest Sunni Muslim leader and as such was nominated again as prime minister.

His Future Movement said it was now possible "to wager" on the government being formed before the holidays, saying this was "a pressing matter" due to "economic and financial challenges".

In Washington, a State Department official said the United States hoped that Lebanon's next government would be willing to work with it "on areas of mutual interest" and expressed concern over Hezbollah's rising political clout in the country.

The United States is the biggest backer of the Lebanese army, providing more than $1.5 billion in support since 2006.

"We continue to have deep concerns regarding Hezbollah's growing political power inside Lebanon," the official told Reuters. "We are concerned about the efforts of Hezbollah's political allies that provide it with top cover and a veneer of legitimacy."

COMPROMISE

Efforts to form the government have faced a series of obstacles, the last of which surrounded Sunni representation, with Hezbollah demanding a cabinet seat for one of its Sunni allies to reflect their election gains.

Hezbollah is expected to get three ministries in the upcoming cabinet for the first time, instead of two, including the health ministry.

Hariri has resisted the demand.

But under a compromise that has taken shape, the Hezbollah-linked Sunnis are expected to be represented in government by a candidate acceptable to them rather than insisting that they themselves should get the seat.

In exchange, they say they want Hariri to acknowledge their political standing as a group of Sunnis independent of his Future Movement by meeting them. The Hariri family has dominated Lebanese Sunni politics for decades.

"Within two or three days - God willing - you will hear the news that the Lebanese masses were waiting for," Abdel Rahim Mrad, one of the pro-Hezbollah Sunni MPs, said after meeting Ibrahim. "All the problems have been solved."

The Sunni minister is expected to be named among a group of ministers allotted to President Michel Aoun, a compromise on the part of his Free Patriotic Movement (FPM). "Every solution requires a concession and everybody has conceded," Gebran Bassil, the head of the FPM and Aoun's son-in-law, said.

(Additional reporting by Dahlia Nehme in Beirut and Lesley Wroughton in Washington. Editing by Andrew Heavens, Richard Balmforth and James Dalgleish)

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